This is my column for this week from the Arizona Republic (permanent link).

You probably won’t sell your home for an above-market price, but even if you do, the home still has to appraise for that price

So your house is finally under contract. Congratulations. It took longer than you thought it would to sell, and you had to go through three price reductions before you got regular showings. But now you’re under contract and in escrow. You’ve made it through the inspections and you’ve taken care of all of the repairs. Nothing but smooth sailing from here, right?

A lender will only lend on the appraised value or the purchase price — whichever is lower. If the appraisal comes in lower than the purchase price, something has to give.

If there’s an appraisal contingency in the contract — and there almost always is — the buyers can cancel the contract unilaterally.

More likely, they’re going to want you to lower your price instead.

If you don’t, you’re almost certainly killing that contract. The lender will not underwrite the loan, so the buyers will be forced to cancel using the financing contingency.

You could end up waiting quite a while longer for another buyer. And that buyer could offer you quite a bit less for your home. And even then, your house will still have to appraise for the purchase price. If home values continue to decline, you could live through this same nightmare a second time.

So does that mean you should cave on the appraisal no matter what? Not necessarily — depending on your objectives. If you need to move now, take your punishment and move on. But if you can afford to wait long enough for the market to recover, that might be the better option.

Appraisers and loan underwriters are skittish right now. Lenders are taking back homes and selling them for fifty cents on the dollar. Appraisers are being fastidious to make sure they are not overestimating values.

And all of this is just another reason to price your home to the market. You probably won’t find a buyer willing to pay an above-market price. But even if you do, the home still has to appraise for that price.

It just happened to me, fortunately the buyer and seller split the difference. The appraisal was suspect but lender would not allow appeal. You are right, this appraiser lacked a sliver of courage.

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